22 January, 2021

When Medicine-Men Failed

Nobody really knows what medicine will work for East Asia. What we do know is that traditional prescriptions aren't delivering the results. Maybe it's time to experiment

When Medicine-Men Failed

THIS January at Davos, I heard a startling confession by Stanley Fischer, macro-economist and first deputy managing director of the International Monetary Fund. Over a drink, Fischer admitted that many of the traditional macro-economic indices of health had failed to reveal the magnitude of the crisis in East Asia. In particular, the IMF didn't get an early grip on the extent to which the rot had spread in banks, financial institutions and capital markets of South Korea and Indonesia. Fischer also acknowledged that understanding the micro-economics of banking, corporate governance and capital markets was critical, but admitted that the Fund didn't have in-house expertise to deal with such issues. The global emperor of macro-economics had no clothes.

There is little doubt that Indonesia and South Korea exposed the poverty of traditional macro-economics. In 1995-96, none of the indicators showed any deep-rooted malaise. Both countries were enjoying high growth rates in national and per capita income. Neither had fiscal deficits worth the...



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